What Are The Risks Involved In Real Estate Development?
The risk factor is there in every form of business. Even real estate incurs various risks in its projects. Talking about risk, there can be many ways by which it can affect the business. Incurring a loss on investment is the highest form of risk that every real estate agent undergoes.
Sassan Kimiavi one of the leading real estate developers will brief you a little bit about how the real estate developers manage their risk?
The current market scenario is full of various doldrums. Sometimes risks are quite high in the real estate sector. Here lets highlight some of the risk which a person can face being a real estate developer.
The various projected risk are:
The land value risk- The land value risk is the highest in real estate industry. The value of land changes at frequent intervals which causes a great risk. Every real estate developers face such situation in business growth. Due to the change in the market scenario, sometimes the value of land decreases at an exorbitant rate which causes a huge land risk.
Land exploitation risk- This risk is mainly dictated towards environmental issues. There are various environmental factors which causes a negative effect on the land. This also becomes a risk factor for property developers.
Planning permit risk- This is another risk which is highly involved in every real estate project. Getting the permission from different bodies of the government is somehow the most difficult task for the real estate developers.
Construction risk- The constriction risk in real estate is extremely volatile. The risk has got a long time effect on the image of the real estate developer. Therefore the building materials and every other essential item should be of good quality to get rid of the risk involved in construction.
Revenue risk- This is another important element which carries risk at every step of project development. The various factors which create the revenue risk are rent levels, sales price, inflation and interest rate levels etc.
The above mentioned points are some of the basic risks involved with every real estate developers. Now e will be shifting towards risk at the portfolio level. This type of risk is hardly talked about but at certain times this becomes the greatest factor in real estate development.
It often happens that a real estate developer is active in various countries across the world. The portfolio of the company is spread over several countries and is highly diversified. Due to this it becomes very difficult to target the exact audience for the company. Every place around the world has different categories of target audience and that becomes difficult for the real estate developers. It is not possible to change the portfolio for every country. Along with this it is also not possible to determine that which diversification will involve optimal amount of risk.
As said before, that risk will be there in this particular business arena but on the contrary there are certain ways by which a real estate developer can be saved from these risks. Sassan Kimiavi one of the top real estate developers believes that risk is a part of learning in the real estate business. If a person faces risk he will get to understand the business in a proper way and will earn a good experience.